Circuit City (CC) and GM (GM) have effectively proved a point about the current economy and credit markets. Without substantial positive cash flow and operating earnings, raising money is nearly impossible. Corporations which already have a large amount of debt on their balance sheets are particularly unlikely to find financing.

Earlier today Circuit City filed Chapter 11 and GM’s share price target was dropped to zero by Deutsche Bank. The nation’s largest car company will either run low on money early next year or be forced to raise money in a fashion that will wipe out common shareholders.

The news from the consumer electronics and car companies pushed CC shares as low as $.11 against a 52-week high of $8.24 and GM’s down to $3.02 against its 52-week high of $32.80.

The question is which well-known US company will be next into the credit gauntlet. The answer is that it will probably be Sirius XM (SIRI).

The combined debt load of the merger Sirius and XM is about $2.5 billion. Together they had operating losses of about $150 million in their last reported quarters. They now say that the slowing new car market will cause them to miss their revenue targets for the next two years.

Sirius XM expects no free cash flow in 2009 and $400 million in 2010. If the recession deepens, those numbers are likely to be at risk. The company says it is in discussions with several financial institutions regarding a financing to replace its 2-1/2% Convertible Notes due 2009. There is absolutely no reason to believe that those negotiations will be successful.

We have already noted how the company faces listing issues, and there is this new lawsuit which is going after management to keep it from causing the ultimate harm to shareholders.  The satellite radio company needs to dump some of its debt. Chapter 11 may be the only realistic way to do that now.

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Douglas A. McIntyre

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